Jun 24 2009 Alex Davidson
When Lehman Brothers failed, New York made the decisions and the Financial Services Authority was upset that it did not have a voice at the table, according to Simon Morris, partner, financial services, at CMS Cameron McKenna.
He said at a presentation, "Regulatory reform: understanding the impact", that Lehman's collapse suggested the need for a fully capitalised, independent subsidiary. "If you follow that argument through, you get deglobalisation of financial services, which is very dangerous. It is reverse engineering of a very successful regulatory system to help with the problems of a few."
According to Morris, this was the argument for less Europe. The case for more Europe was that there were different rules in different member states, with no one country regulator, as for Lehman. "There is a lot of pressure for more decisions to be made in Europe."
If so, Morris noted, the FSA would lose some authority. "But already, few FSA rules are pure FSA. They are Europe-influenced." He said that the Alternative Investment Fund Managers directive would be damaging to London. "The French and Germans could have a motive here." Morris noted that at the end of last year, the FSA issued a paper saying that it could not regulate a firm in a larger group unless it regulated other members of the group.
He said that there was an interesting link between risk and remuneration. "The FSA says we must do our own proposals [on remuneration] because Europe is doing something and we want to influence Europe. But the FSA doesn't need new rules. The one new rule that it proposes is that remuneration procedures are consistent with proper risk management, but this is no more than is already required."
According to Morris, the FSA is issuing financial guidance in this area, which will have the status of rules, but it does not apply to incoming firms. A person who worked at HSBC, which is FSA-regulated, and wanted to receive higher bonuses, could move to another firm such as Deutsche Bank, or to another country. "The FSA is not a sovereign regulator. It cannot regulate beyond its scope, which is high."
Paul Edmondson, partner, financial services, at CMS Cameron McKenna, said that the FSA, in its new liquidity requirements, was focusing not just on UK institutions but also on their branches, and that it had more reporting requirements than before. "Distinctions on structure, as whether you have a branch or a subsidiary in the UK, are less important."
He said that the FSA was keen to extend regulation to currently unauthorised holding companies. "It does this to some extent in consolidated entities."
